before the hearings panel for the … · for the queenstown lakes proposed district plan in the...

BEFORE THE HEARINGS PANEL FOR THE QUEENSTOWN LAKES PROPOSED DISTRICT PLAN

IN THE MATTER of the Resource Management Act

1991

AND

IN THE MATTER of the Rezoning Hearing Stream 12 - Upper Clutha

STATEMENT OF EVIDENCE OF PHILIP MARK OSBORNE

ON BEHALF OF QUEENSTOWN LAKES DISTRICT COUNCIL

DWELLING CAPACITY

1 May 2017

Barristers & Solicitors

S J Scott Telephone: +64-3-968 4018 Facsimile: +64-3-379 5023 Email: [email protected] PO Box 874 SOLICITORS CHRISTCHURCH 8140

TABLE OF CONTENTS

1. INTRODUCTION ................................................................................................................ 1

2. EXECUTIVE SUMMARY .................................................................................................... 2

3. SCOPE OF THIS EVIDENCE ............................................................................................ 3

4. THE MODEL PURPOSE, SCOPE AND GUIDING ASSUMPTIONS ................................ 4

5. THE DISTRICT'S RESIDENTIAL MARKET AND POPULATION PROJECTIONS ......... 7

6. SUMMARY OF 'FEASIBILITY' FACTORS CONTRIBUTING TO THE UPDATED MODEL ............................................................................................................................. 10

7. SUMMARY OF UPDATED DEVELOPMENT CAPACITY MODEL OUTPUTS FOR UPPER CLUTHA .............................................................................................................. 14

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1. INTRODUCTION

1.1 My name is Philip Mark Osborne. I am an Economic

Consultant for the company Property Economics Ltd, based in

Auckland. My qualifications include – Bachelor of Arts

(History/Economics), Masters in Commerce, a Masters in Planning

Practice, and have provisionally completed my doctoral thesis in

developmental economics.

1.2 For the past thirteen years I have been an economic property

consultant for Property Economics. Previous to this I have

been a business analyst to several large firms both here and in

Europe. I also taught economics at both the secondary and

tertiary level.

1.3 I have recently advised, and currently advise, centra l

government organisations such as the Ministry for the Environment

and the Ministry for Business Innovation and Employment as well as

local authorities including Christchurch City, Napier City, Auckland

Council, Wellington City and Wellington Regional Councils,

Waikato Regional Council, and Far North Councils in relation to

forward planning and resource valuation issues. I also provide

consultancy services to a number of large private sector clients in

regard to a wide range of property issues, including economic

impact assessments, forecasting market growth, determining

future land demand for the residential and business sectors, and

economic cost-benefit analysis.

1.4 My evidence is provided on behalf of Queenstown Lakes District

Council (Council) and relates to the on-going work stream that

Property Economics is producing for the Council, in updating its

Dwelling Capacity Model (DCM) and to provide evidence

specifically in relation to the Upper Clutha (Wanaka Ward). I

understand that a similar focus will be required in the Queenstown,

and subsequent Wakatipu hearings. I also wish to reiterate that,

when land that has not been notified in Stage 1 is notified in a

subsequent Stage, that the DCM will need to be revisited.

1.5 Although this is a Council hearing I confirm that I have read the

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Code of Conduct for Expert Witnesses contained in the

Environment Court Practice Note 2014 and that I agree to comply

with it. I confirm that I have considered all the material facts that I

am aware of that might alter or detract from the opinions that I

express, and that this evidence is within my area of expertise,

except where I state that I am relying on the evidence of another

person.

2. EXECUTIVE SUMMARY

2.1 The Queenstown District's property market has experienced

significant changes over the past 15 years both from real changes in

the market and as a result of substantial levels of speculation. As

such there is pressure on all forms of land use activities with

residential affordability levels at a national low.

2.2 The PDP seeks to address this issue, in part, with changes to

provisions allowing greater degrees of development and

redevelopment for the purposes of increasing the quantum, choice

and consolidation of residential activity in appropriate locations.

2.3 The District is recognised as one of New Zealand's high growth areas

and is expected to see doubling of usually resident1 population over

the next 30 years. This, coupled with the demand for residential

visitor accommodation, will see demand for nearly 15,000 additional

dwellings over this period.

2.4 The Upper Clutha area too is expected to see substantial growth with

nearly 3,000 new dwellings required by 2028 and 5,000 by 2048.

2.5 The residential capacity enabled for the District under the PDP

provisions has been estimated at 43,000 dwellings with 14,000 of

these within the Upper Clutha catchment. It is however important to

filter this capacity through market factors that will provide a greater

understanding of whether the market is actually likely to supply this

capacity.

1 Based on Rationale Projections outlined later in the evidence

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2.6 Having undertaken such an assessment the feasible capacity,

understandably, represents a reduced component of the enabled

capacity. For the District it is expected that the market could provide

as many as 23,800 dwellings (when considering the Special Purpose

Zones) with current conditions providing 5,400 of these to the Upper

Clutha market. In relation to the current market there are 18,000

dwellings current occupied and unoccupied in the District with 7,000

of these located within the Upper Clutha area.

2.7 Given the timeframes involved and the level of development potential

provided within the PDP, there is more than sufficient capacity for the

market to meet expected future demand.

3. SCOPE OF THIS EVIDENCE

3.1 The purpose of this evidence is to:

(a) outline the process undertaken to assess the 'feasible'

capacity, through the DCM, for residential development

facilitated through the Proposed District Plan (PDP)

provisions;

(b) provide the outputs of the updated dwelling capacity model;

and

(c) assess whether the PDP provisions are sufficient to provide

the market with sufficient impetus to meet the projected

residential dwelling demand for the Upper Clutha area, from

an economic perspective.

3.2 My evidence also seeks to contextualise the enabled capacity

facilitated through the PDP in the current market faced by the District,

with a particular focus on the Upper Clutha. This evidence attempts

to address the potential market response to increased opportunities

provided under the PDP. As mentioned above, evidence focused on

Queenstown and the Wakatipu will be presented in the context of

those hearings, and will need to be readdressed when subsequent

land is notified through this review process.

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4. THE MODEL PURPOSE, SCOPE AND GUIDING ASSUMPTIONS

4.1 As identified above the purpose of this facet2 of the DCM update (to

date) is to assess whether the zoning under the PDP enables the

market to deliver the quantum of commercially feasible housing

product necessary to meet identified future demand.

4.2 The model has been updated across the District, using the Stage 1

notified chapters, and for land that has not been notified in Stage 1,

the operative provisions applying to that land have been incorporated

into the model.

4.3 The model itself has then been applied to the following Upper Clutha

(Wanaka Ward) zones:

PDP:

(a) High Density Residential;

(b) Medium Density Residential;

(c) Low Density Residential;

(d) Large Lot Residential;

(e) Wanaka Town centre;

(f) Local Shopping Centre;

(g) Business Mixed Use;

(h) Rural Lifestyle;

(i) Rural Residential;

(j) Rural.

ODP:

(k) Township (Luggate, Albert Town, and Lake Hawea and

Makarora);

(l) Three Parks (including Three Parks North) Special;

(m) Penrith Park Special;

(n) Northlake Special;

(o) Cardrona Rural Visitor; and

2 The base for this assessment includes the data utilised to assess the enabled capacity provided by QLDC

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(p) Mt Cardrona Station Special.

4.4 Three areas have been excluded from both the updated plan enabled

capacity and the model. These are the operative Rural Visitor Zone

at Windermere, the PDP Rural Residential Zone at Rekos Point and

the PDP Rural Lifestyle Zone at Makarora. I understand that these

have been excluded for resource management reasons not related to

my area of expertise, and are explained by Mr Barr’s evidence.

4.5 The model is based on a number of high level assumptions including:

(a) the model is based on the notified PDP, and where land has

not been notified in Stage 1 of the plan review, it has been

based on the operative zone for that land (consistent with

paragraphs 4.3 and 4.4 above);

(b) the planning regime remains unchanged over the assessed

period of time (ie, through to 2048);

(c) although the model assesses development potential on a

site by site basis, it does not assume individual’s behaviour

but utilises averages to understand the typical outcome

within the market. It is important to note that these

'averages' represent a market characterised in the District as

one that has displayed lower realisation rates of

development, and as has been previously identified has a

proportionately higher likelihood of speculative land trading;

(d) the interaction between demand and supply has been

assumed to be constant. Demand has been fixed through

the Rationale population projections (as set out in Mr Barr's

supplementary evidence in his Appendix A) and has not

been altered for the range of possible supply outcomes. It is

acknowledged that these factors are interactive and in turn

influence market indicators such as price and affordability;

(e) in addition to this there is interaction between demand and

supply in terms of its geo-spatial distribution. The identified

distribution of demand is, to a degree, reliant on the

provision, through the market, of housing supply at a level to

at least meet this demand;

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(f) the model assumes that there is sufficient infrastructure

capacity to meet supply needs and so the availability of

infrastructure does not influence the feasible outcome (I note

Mr Barr addresses infrastructure in his supplementary

evidence);

(g) development feasibility occurs when a specified return is

met within the market (in this case 20%). While this is a

market driven return, development can still occur as owner

occupiers develop not on returns, but based on individual

requirements and potential equilibrium with the projected

value;

(h) the nature of rezoning for greater levels of density has the

effect of changing land values. This value is generally

proportionate with the level of rezoning but is also present in

the market, generally to a lesser degree, as a result of the

expected changes as well as the actual changes to land

value. As such the DCM expects some degree of 'windfall

gain' for the property owners that must be considered in

terms of the purchase price of development potential;

(i) at this stage, the model has not considered the changes

over time as they relate to the relative value of

improvements (built form) to land values. It is expected that

over time the value of these improvements will fall,

increasing the potential for redevelopment;

(j) at this stage no assessment has been made with regard to

the amalgamation of sites (as per the enabled capacity

component of the DCM);

(k) the development model excludes GST;

(l) the model filters development options by the highest return

in response to an efficient and effective market; and

(m) the model assumes that the potential development will

undertake a 'capacity' development unless it is not feasible.

It does not consider the possibility of underdevelopment

occurring that may also be feasible but may not reach

maximum capacity (this may result as a lower risk option for

development). This is especially the case in relation to

medium to higher density product, which is likely to result in

a lower overall capacity even in the longer term.

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5. THE DISTRICT'S RESIDENTIAL MARKET AND POPULATION

PROJECTIONS

5.1 The District's residential market has seen substantial growth over the

past 15 years with new household formation at over 5,000 additional

since 2001.

5.2 From 2001 to 2016 it is estimated that demand for residential housing

and residential visitor housing rose by nearly 7,000 homes. While

new building consents have been buoyant it is estimated that for the

13 year period to 2013 there was a shortfall of approximately 800

homes built in the District.

5.3 As with the national market the District’s housing price and sales rate

have steadily increased throughout the period with a slight correct

following the 2008 Global Financial Crisis. Within 5 years the

average house price in the District had achieved pre-2008 prices and

has continued to rise at an increasing rate to an average of over

$1,000,000 currently.

5.4 A key statistic in the District's property market is the high level of site

sales. Although this would be expected in a District with high growth

the sales levels are materially higher. This would suggest a highly

speculative vacant site market that is directing zoned residential land

into a tradable commodity. This in itself impacts upon the tools

available to the Council in addressing affordability in the District.

5.5 There is a dearth of properties in the lower price quartile entering the

market, and the overall affordability for the District’s housing stock is

one of the lowest in the country. With only 35% of the resident

population owning their own home (and only 8% of the population

under 40), finance on an average home is expected to consume over

50% of household income annually (and this figure is rising).

5.6 These factors have led to a market that is increasingly unaffordable

and currently struggles to meet the housing needs of its growing

resident population as well as the growing visitor demand.

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5.7 The PDP notified by Council in Stage 1 seeks to address these

housing issues through increasing the enabled residential

development capacity both in terms of overall quantum and in terms

of typology / choice.

5.8 While the District's current housing market has exhibited strong levels

of growth that have resulted in potential shortfalls, rising house prices

and falling affordability, the expected rates of growth in the District are

not expected to diminish.

5.9 Table 1 below summarises the District's and Upper Clutha3 demand

projections for the next 32 years, with continued growth expected

throughout this period. This shows District growth of over 33,000

people over the next 32 years, requiring an additional 14,500 houses.

The Upper Clutha growth is expected to see an additional 12,000

residents over the next 32 years accommodated within 5,000 new

homes. New dwelling consents in the District would suggest current

building provision per annum would meet these needs with between

800 and 1,000 new homes per annum.4

5.10 Included in these projections is the relatively higher number of

unoccupied dwellings that make up both the existing and projected

demand for dwellings in the District and Upper Clutha. While these

units do not make up part of the usually resident population they do

present a clear demand within the market for holiday homes.

5.11 Across the District these empty homes are expected to continue to

increase (as a nominal value) with the advent of more efficient holiday

facilities (i.e. AirBnB) maintaining a greater degree of financial

sustainability for these properties.

3 Illustrated as the 'Wanaka Ward' 4 Statistics NZ new dwelling consents Feb 2016 to Feb 2017.

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Wakatipu Ward 2015 2018 2028 2048 2053 2058Growth#

2015 - 2028

Growth%

2015 - 2028

Growth#

2015 - 2048

Growth%

2015 - 2048

Usually Resident Population 22,070 25,557 32,627 43,846 46,610 49,374 10,557 48% 21,776 99%

Occupied Dwellings 8,529 9,825 12,575 17,250 18,465 19,708 4,046 47% 8,720 102%

Unoccupied Dwellings 2,102 2,303 2,679 3,011 3,061 3,105 577 27% 910 43%

Total Dwellings 10,631 12,128 15,254 20,261 21,526 22,813 4,623 43% 9,630 91%

Wanaka Ward 2015 2018 2028 2048 2053 2058Growth#

2015 - 2028

Growth%

2015 - 2028

Growth#

2015 - 2048

Growth%

2015 - 2048



Unoccupied Dwellings 2,133 2,409 2,471 1,817 1,620 1,421 339 16% -315 -15%

Total Dwellings 6,412 7,590 9,420 11,334 11,774 12,217 3,008 47% 4,922 77%

Queenstown Lakes District 2015 2018 2028 2048 2053 2058Growth#

2015 - 2028

Growth%

2015 - 2028

Growth#

2015 - 2048

Growth%

2015 - 2048



Unoccupied Dwellings 4,234 4,712 5,150 4,828 4,681 4,526 916 22% 594 14%

Total Dwellings 17,043 19,718 24,674 31,595 33,300 35,030 7,631 45% 14,552 85%

Table 1: Estimated Population and Dwelling Demand (2048 – Rationale)

Source: Rationale February 2017

5.12 As outlined in the preceding paragraphs consent and growth trends

would suggest a latent demand for between 600 and 1,200 new

dwellings currently in the District market

5.13 Given this level of expected growth the District would require

development to continue at least at the rate of 600 homes per

annum5 for this period. This level of realised capacity would

necessitate much higher enabled and feasible capacity to meet this

level of development. I explain what I mean by the 'enabled' and

'feasible' capacity in the section below.

5 Based on Statistics New Zealand building consent numbers.

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6. SUMMARY OF 'FEASIBILITY' FACTORS CONTRIBUTING TO THE

UPDATED MODEL

6.1 Initial work undertaken by Council (as set out in Mr Barr's

supplementary evidence at Section 4), assessed the residential

dwelling capacity 'enabled' by the ODP. This illustrated the

opportunity available, under the provisions of the ODP, to the market.

As described in this evidence, this has been progressed significantly,

and now applied to the PDP. Further, not all plan-enabled capacity is

economically feasible to develop due to market conditions and other

influencing factors. In developing the PDP to meet the community’s

housing needs it is important to consider the 'feasible' capacity that

results from these provisions and market conditions.

6.2 The feasibility model attempts to replicate, at a desk top level, the

decision-making process of a developer assuming the costs and

prices associated with the 2016/17 year.

6.3 As a tool the model assesses the potential market responses to

potential changes in zoning, rules, or other such provisions. A key

assumption of the model as outlined above is that the development of

residential dwellings is profit driven. While this is not the only

motivation it provides an appropriate filter to consider the likely

market response.

6.4 While the model itself includes some complexities, its premise is

simple. If the cost of the enabled capacity is recovered through the

sales value and a predetermined return is achieved then the

development capacity is deemed feasible. While there are a variety

of variables the model exhibits material sensitivities to only a few.

These are outlined below and primarily include the impact of the

expected return as well as the proportion of zoning 'uplift' in land

value pre-empted by the market in the initial purchase price.

6.5 The key factors included in the model include:

(a) sales value and individual site value;

(b) existing sale value;

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(c) build cost (per sqm) and dwelling size;

(d) development costs;

(e) development fees/levies;

(f) holding/finance costs;

(g) design/servicing/contingency;

(h) profit margin;

(i) slope;

(j) trended site inefficiencies; and

(k) new dwelling premium.

6.6 While the model calculates the development feasibility at a site-by-

site basis, it applies averages based on the wider District and specific

identified areas to tens of thousands of properties throughout the

District. The model draws on the opportunities identified within the

enabled capacity and links site size, land values, zoning, and location

to the potential development based on the size and quality of

properties in the specific locations.

6.7 In terms of sales value several factors have been considered, which

include:

(a) The existing average sales value for the area by product

typology. If the area or zoning represents a new market in

the area, then the model averages the sales from the areas

in immediate proximity. The valuation for each site has

been updated utilising the most up-to-date sales figures for

each area. This has then been broken down in

'improvements' (built form) and land values utilising the

value of consents to estimate the increased relative value of

building replacement.

(b) Additionally, the division of sites into smaller land units

typically increases the land value per sqm but (marginally in

the case of the Queenstown District) decreases the nominal

value. Regression analysis has illustrated that dwellings

built in the 2010 – 20166 period attract on average a 15%

premium.

6 Range is based on REINZ scale utilised by Property IQ.

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6.8 Based on these factors the value of enabled capacity by site can be

assessed. Then:

(a) The existing sales value has been estimated through the

updating of the 2014 valuations to 2017. This remaining

value is also reassessed based on the remaining land area

and improvement value. The value of the existing dwelling

is considered lost if it is below a given value level.

(b) Based on the zoning attributable to each site, detailed

dwelling typologies are allocated, which is based on zoning

and location. Each typology and location is assigned

differing floor areas and costs based on the existing product

(or in the case of new areas the model identifies averages

from areas in close proximity). This allows for higher value

areas to develop larger dwellings with higher quality finishes

and reconciles with the higher average sale prices. These

costs are made up by area specific costs such as

construction, civil and landscaping costs

(c) Some costs applied were not area specific (although some

were influenced by land value), including development

contributions, holding costs (finance costs were assigned

based on the typology and length of time for builds and

sales, marketing and design etc).

(d) Additionally, further consideration is applied to the model, at

an area level, with reference to the proportion of

development capacity reduced by both slope and site

inefficiencies. While planning provisions allow for minimum

site sizes with reference to dwellings, the practicalities of

development mean that the resulting 'average' site size is

unlikely to meet this minimum level but (as Queenstown

District trended data would suggest) will be materially

higher. To a degree this considers some of the

'underdevelopment' resulting for developments that are 'sub-

optimal' in terms of their development capacity.

(e) Finally, the level of return is considered. Typically, banks

will lend 60-65% of a project’s value or 80% of costs (the

lower of the two). Therefore at least 20% of costs are met

by the developer. The level of return required to catalyse

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development is dependent on the level of risk, which is a

function of variability within the market and other investment

opportunities. The District's market has remained buoyant

over the past 5 years and is seeing considerable levels of

investment. Given this the model has been run on a

benchmark of 20% return.

6.9 The feasible development capacity is the result of assessing the

enabled capacity under the conditions and variables outlined above.

The result of this assessment is to provide the number of potentially

feasible dwellings (by zoning typology) under the current provisions

and market inputs.

6.10 It is important to note that 'feasible' does not translate to 'realised' due

to the fact that when averages are considered there are a variety of

differing motivations that will change this in terms of what the market

actually produces. A relevant issue, with regard to this, for the District

is the significant gains realised in the market through simply holding

land and selling at a later date without any further development. This

is likely to have a greater short term impact on the market in

Queenstown as development opportunities take some time to be

realised. This fact is crucial in considering whether the feasible

capacity actually meets the needs of the community and is likely to

result in an efficient and effective market.

6.11 This point is often considered as 'development chance' in

understanding the potential market response to feasible development.

The issue was raised by both proponents and opponents of the

feasibility model produced for Auckland Council in relation to the

proposed Auckland Unitary Plan.7 In relation to the Queenstown

District market consideration of this fact would effectively half the total

number of feasible opportunities within a given market. For this

reason, the resulting 'feasible' development potential for the District is

considered at 50% of the final model outputs at this stage.

7 This is highlighted in the Auckland Council evidence for Topic 013 of Mr Doug Fairgray and the 081 evidence

presented for MBIE

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7. SUMMARY OF UPDATED DEVELOPMENT CAPACITY MODEL OUTPUTS

FOR UPPER CLUTHA

7.1 It is vital to ensure the District has a competitive well-functioning

housing market and a competitive urban land market over the longer-

term to provide the market with sufficient feasible development

opportunities. Further to this a market that has confidence in the

sufficiency of future capacity and supply is less likely to result in

speculative activity, and will encourage development to occur sooner

rather than waiting for values to continue to appreciate.

7.2 The following tables summarise the enabled and realised (feasible

less estimated proportion of unimplemented development) capacity

for residential development within the District and Upper Clutha

areas. The enabled capacity results from the Council's assessment

of zonings for given areas and the site sizes as well as existing

structures.

7.3 Table 2 below shows the total number of enabled residential units

under the PDP within the District as 43,100. The DCM has excluded

operative Rural Visitor Zones and operative and proposed Special

Purpose Zones from its assessment for the primary reason that they

have been identified as development zones that have capacity

estimates associated with them. For example, within the Upper

Clutha these are Penrith Park, Northlake, Three Parks, Mt Cardrona

Station and the Cardrona Rural Visitor Zone. Collectively I refer to

these as 'Special Purpose'.

7.4 Of the 43,100 enabled capacity within the District, 14,200 are located

within the Upper Clutha catchment. This includes a relatively low

number (relative to the proportion within the District) of Special

Purpose capacity at 2,100 units. Excluding these the Upper Clutha is

likely to have a realised capacity of 3,300 additional residential

dwelling units.

7.5 I would like to emphasise that we have focused on updating and

refining the DCM as it relates to residential dwelling capacity in the

PDP for the Upper Clutha area. The DCM has been completed for

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Enabled Capacity DCM Special Zones Total

Queenstown Wakatipu Ward 14,557 14,369 28,926

Wanaka Ward 12,107 2,098 14,205

Total 26,664 16,467 43,131

Realisable Capacity DCM Special Zones Total

Queenstown Wakatipu Ward 4,013 14,369 18,382

Wanaka Ward 3,318 2,098 5,416

Total 7,331 16,467 23,798

the Queenstown and Wakatipu Basin however the equivalent level of

refinement has not been completed at this point in time. Evidence on

dwelling capacity in the Wakatipu Basin and Queenstown area will be

provided in the context of these respective hearings.

7.6 Table 1 above indicated the estimated growth in residential units in

Upper Clutha at 5,000 by 2048. Given the above assessment

identifying the number of enabled units in this catchment, and the

number of units likely to be realised under current conditions, I

consider that the provisions of the PDP will provide sufficient capacity

for growth in residential units.

7.7 When considering a buffer such as that identified by the National

Policy Statement for Urban Development Capacity, even with the

provision of an additional 20% included in demand, the current

capacity would be sufficient to 2043.

Table 2: DCM ENABLED AND REALISED CAPACITY OUTPUTS

7.8 It is also important to understand the typology that is likely to result

from both the planning provisions under the PDP and the associated

market drivers. Table 3 below outlines the likely composition of high

to low density residential development. From the table, it is clear that

low density standalone residential product makes up the primary

proportion of the enabled and realisable capacity. This is

exacerbated with lower proportions of high density product becoming

feasible and realised. A driving factor associated with this is the risk

accompanying the development and marketing of this product in a

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Enabled Feasible Realised

Low Density Residential 10,719 6,103 3,052

Medium Density Zone 1,090 381 225

High Density Residential 427 281 107

Zone TypeUpper Clutha

market that currently exhibits, proportionately, low levels of demand

for this typology.

7.9 This proportional split between dwelling types (as a result of density)

is likely to show significant shifts over time. As indicated below there

are likely to be dynamic factors (such as decreases in improvement

value) that will increase the likelihood of feasibility. While at this point

in time higher density product exhibits lower feasibility rates these are

likely to see greater proportional levels of feasibility over time, as not

only supply constraints are lifted but preferences in the market

change (proportionately) also.

Table 3: UPPER CLUTHA PDP ENABLED AND FEASIBLE UNITS BY DENSITY

7.10 As highlighted above there are a number of contributing factors that

may result in changes to these estimates. These include the impacts

of underutilisation where sub-optimal development is undertaken

(while still feasible), any infrastructure constraints and the impact of

increased ‘wind fall’ gains. While part of the latter issue has been

included in the model decisions by participants in the market are not

necessarily made based on the current environment. Expectation of

greater levels of rezoning or increased prices can lead to

inefficiencies in the market where feasible locations and sites are

'banked' in anticipation of greater future returns.

7.11 Alternatively, there are some factors that may increase the level of

development occurring including; the amalgamation of sites,

economies of scale reducing ‘average’ costs, and the dynamic nature

of the housing market. As outlined above the factors that influence

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the model are those that currently exist in the market. However, over

time such factors as land value to improvement value change. This

gradual increase in the land component of an ageing property will

mean that the properties become more attractive for re-development

over time.

7.12 A further consideration with regard to the model is the sensitivity of

the outputs to changes to the inputs. In assessing the level of

feasible residential units each component was tested to see if a

change in its value resulted in a greater than proportional change in

the level of feasible units. One key factor in this was that of profit. As

the percentage of profit required to meet a feasible threshold dropped

the level of feasible units rose for profit between 20% and 10% with

gains in additional units of 15%. Below this point the fall in required

return had little impact on the level of feasibility as most additional

units were not profitable.

7.13 In assessing the sufficiency of the feasible and realised capacity there

is economic justification for considering a longer period of time than

that covered by the PDP reviews. A period of 10 years would

suggest that a capacity of only 2,500 units would meet the estimated

demand however it is considered that a well-functioning housing

market requires a large number of potential development

opportunities to be available, so that developers and prospective

homeowners have a wide variety of choices, and the downward

competitive pressure is applied to land prices across the district. If the

market has confidence in the sufficiency of future development

capacity and supply over the long term, then this will help reduce

speculation-driven price increases, as well as encouraging

landowners to develop their land sooner rather than hold out for

higher prices later (i.e. land-bank).

29201768_1.docx 18

7.14 The 5,400 dwellings, identified in Table 2, in my opinion is sufficient

to accommodate projected growth over a period longer than the 30-

year demand projection. Notwithstanding the additional opportunities

that may arise over time, this would require only half of the currently-

feasible development opportunity to be taken up within 30 years to

the maximum feasible capacity of each site.

Philp Osborne 1 May 2017

before the hearings panel for the … · for the queenstown lakes proposed district plan in the...

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